PFC Board Clears Plan To Absorb REC, Seeks President Approval

22 May 2026 CW Team

PFC acquired a majority 52.63 per cent stake in REC in May 2019 and became its promoter. A merger was considered in 2019-20 but did not proceed largely because Reserve Bank of India limits on financing by a single non-bank financial company to an individual project constrained the move. The board approval now advances the plan.

The proposal gained momentum after the Union Budget for 2026-27, when the finance minister outlined a vision for public sector non-bank financial companies (NBFCs) to scale credit disbursement and adopt technology. The budget proposed restructuring PFC and REC as an initial step to improve efficiency and scale in state-owned NBFCs. The government framed the move as helping meet financing targets.

Both PFC and REC are Maharatna non-bank financial companies under the ministry responsible for power and provide long-term financing to power and infrastructure sectors. A combined PFC-REC would be among the largest government owned NBFCs by loan book and is expected to gain from greater scale, governance and technology adoption. An October 2025 report by Morgan Stanley projected a compound annual growth rate of approximately 12 per cent in loans between FY25 and FY28 and an average return on equity of 17-19 per cent.

Market analysts said the consolidation aims to channel long-term capital more efficiently to infrastructure and priority sectors while preserving financial stability and consumer protection. They noted that strengthening public sector NBFCs through scale and governance could influence how climate finance flows to the energy transition. The transaction will require further regulatory and legal clearances after presidential approval.

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The board of Power Finance Corporation approved a proposal to merge Rural Electrification Corporation into PFC and will seek the President of India's approval for the absorption. The filing said that once legally effective all REC assets and liabilities will transfer to PFC and REC will be dissolved under sections of the Companies Act, 2013. The trading window for PFC securities will remain closed pending further orders. PFC acquired a majority 52.63 per cent stake in REC in May 2019 and became its promoter. A merger was considered in 2019-20 but did not proceed largely because Reserve Bank of India limits on financing by a single non-bank financial company to an individual project constrained the move. The board approval now advances the plan. The proposal gained momentum after the Union Budget for 2026-27, when the finance minister outlined a vision for public sector non-bank financial companies (NBFCs) to scale credit disbursement and adopt technology. The budget proposed restructuring PFC and REC as an initial step to improve efficiency and scale in state-owned NBFCs. The government framed the move as helping meet financing targets. Both PFC and REC are Maharatna non-bank financial companies under the ministry responsible for power and provide long-term financing to power and infrastructure sectors. A combined PFC-REC would be among the largest government owned NBFCs by loan book and is expected to gain from greater scale, governance and technology adoption. An October 2025 report by Morgan Stanley projected a compound annual growth rate of approximately 12 per cent in loans between FY25 and FY28 and an average return on equity of 17-19 per cent. Market analysts said the consolidation aims to channel long-term capital more efficiently to infrastructure and priority sectors while preserving financial stability and consumer protection. They noted that strengthening public sector NBFCs through scale and governance could influence how climate finance flows to the energy transition. The transaction will require further regulatory and legal clearances after presidential approval.

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